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Miranda’s ESG thoughts – A Brief Introduction to ESG Bonds

Hope you are having a great week and welcome back to our brief thoughts on ESG.  This week I’d like to talk about ESG bonds.

What is a green bond? A social bond? A sustainability bond? A transition bond?

  • A green bond is just like a regular bond, but proceeds are reserved for projects that have a positive impact on environmental issues.
  • Social bonds are a sub-segment of green bonds, and as you may have guessed the proceeds are used in social-related activities (particularly improving social welfare, access and infrastructure for disadvantaged communities, etc.).
  • Sustainability bonds are those whose proceeds go to a combination of both environmental and social projects.
  • Finally, transition bonds are those whose proceeds go to making a company greener (or cleaner). This means they can be used to transition towards a more sustainable business model.

The global context

According to Credit Agricole (the largest bookrunner in this segment globally), green, social, and sustainability bond issuance reached a new record in 2019 (US$285bn globally). They expect this number to reach US$334bn by 2020. In the corporate world, the most active green issuers are still utilities and real estate companies.

Considering this market opened only 10 years ago, it is evident the growth has been pretty fast. The challenge now lies in that regulators and recognized market associations (such as the ICAP) need to set some standards for how green is really green (to prevent greenwashing or conflicts between different geographies). It will also be very relevant that accountability at all levels exists over time (since compliance is usually voluntary).

What is going on in Mexico?

The Bolsa Mexicana de Valores (BMV) launched its own green bond framework in 2016. The Bolsa Institucional de Valores (BIVA) followed in 2019.  Below we highlight the most relevant green/social/sustainability deals since 2016.

To qualify as a green bond in the BMV (and have the corresponding tag) the issuer needs to comply with the “Green Bonds Principles MX”. These include 5 areas:

  1. Use of proceeds: exclusively for green projects such as renewable energy, energy efficiency, pollution prevention and management, sustainable resources (including things like sustainable agriculture or fishing), biodiversity conservation, clean transport, among others.
  2. Evaluation and project selection: in the legal documentation the decision-making process and eligibility criteria needs to be documented together with the environmental objectives.
  3. Proceeds management: proceeds from a green bond issuance go to a sub-account of the issuer and its deployment needs to be tracked.
  4. Reporting: issuer needs to annually report on the use of proceeds until all resources have been allocated.
  5. Independent third-party opinion: there needs to be an independent review of the first 4 points here mentioned.

There still seems to be a lot of growth potential in Mexico’s green bond market. Particularly interesting to us is that since 2016 no issuer has gone to the foreign markets with a green bond structure (the only exception to this is Fibra Uno’s sustainability-linked credit facility, which is a revolving line, not a bond per se).

We will see how this market evolves over time, but as we expect more ESG integration from the local investor side in the coming years, there is a chance companies start to see the benefits of going for a structure like this.

Hope this was of use. As usual, if there is anything we can help you with, please reach out. Also, don’t forget to recommend any ESG subject matter that you would like us to research and put in a forthcoming weekly.



Partner, Miranda ESG

Contacts in Miranda Partners

Damian Fraser
Miranda Partners

Marimar Torreblanca
Miranda ESG